We use cookies on this website, including web analysis cookies. By using this site, you agree that we may store and access cookies on your device. You have the right to opt out of web analysis at any time. Find out more about our cookie policy and how to opt out of web analysis.

Elevator pitch

Evidence suggests that productivity would be
much higher and unemployment much lower if the supply of and demand for
skills were better matched. As a result, skills mismatch between workers
(supply) and jobs (demand) commands the ongoing attention of policymakers in
many countries. Policies intended to address the persistence of skills
mismatch focus on the supply side of the issue by emphasizing worker
education and training. However, the role of the demand side, that is,
employers’ wage-setting practices, garners comparatively little policy
attention.

Key findings

Pros

Analysis shows that 4% of workers are under-skilled, and 10%
are over-skilled for their jobs.

Mismatch is an important determinant of productivity and
wages.

The harmful effect on wages of being mismatched early in one’s
career is large and persistent.

Joblessness in an economic downturn would affect one-third
fewer people if the mismatch problem were resolved.

Cons

Estimates of the effect of skills mismatch on unemployment
suffer from serious measurement issues.

Recent literature indicates that focusing on education and
training to boost worker skills may be misguided; rather, firms’
actions (e.g. adjusting wages to reflect relative skill
shortages) may be a key determinant of skill
mismatch.

US
evidence shows that geographic mismatch has a negligible effect
on productivity and unemployment.

Author's main message

Skills mismatch has large effects on
productivity and unemployment, and is therefore an important concern for
economic policymakers. Almost all proposed policy interventions suggest
reforms of education and training as solutions to perceived shortages of
skills, while little attention is paid to wage setting. This is problematic
because such reforms, which are often expensive, will be ineffective if
wages do not reflect relative skill shortages. If mismatch instead reflects
an unresponsiveness of wages, then workers will “sell” their skills where
they fetch the best price, rather than where they are most needed.